UPDATE 2-Apple signals emerging-market rethink with India push

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Last Updated: Mon, Feb 25, 2013 13:20 hrs

By Devidutta Tripathy and Harichandan Arakali

NEW DELHI/BANGALORE, Feb 25 (Reuters) - As BlackBerry
launches the first smartphone from its make-or-break
BB10 line in India, one of its most loyal markets, the company
faces new competition from a formidable rival that has long had
a minimal presence in the country.

More than four years after it started selling iPhones in
India, Apple Inc is now aggressively pushing the device
through instalment payment plans that make it more affordable, a
new distribution model and heavy marketing blitz.

"Now your dream phone" at 5,056 rupees ($93), read a recent
full front-page ad for an iPhone 5 in the Times of India,
referring to the initial payment on a phone priced at $840, or
almost two months' wages for an entry-level software engineer.

The new-found interest in India suggests a subtle strategy
shift for Apple, which has moved tentatively in emerging markets
and has allowed rivals such as Samsung and BlackBerry to
dominate with more affordable smartphones. With the exception of
China, all of its Apple stores are in advanced economies.

Apple expanded its India sales effort in the latter half of
2012 by adding two distributors. Previously it sold iPhones only
through a few carriers and stores it calls premium resellers.

The result: iPhone shipments to India between October and
December nearly tripled to 250,000 units from 90,000 in the
previous quarter, according to an estimate by Jessica Kwee, a
Singapore-based analyst at consultancy Canalys.

At The MobileStore, an Indian chain owned by the Essar
conglomerate, which says it sells 15 percent of the iPhones in
the country, iPhone sales tripled between December and January,
thanks to a monthly payment scheme launched last month.

"Most people in India can't afford a dollar-priced phone
when the salaries in India are rupee salaries. But the desire is
the same," said Himanshu Chakrawarti, its chief executive.

Apple, the distributors, retailers and banks share the
advertising and interest cost of the marketing push, according
to Chakrawarti. Carriers like Bharti Airtel Ltd, which
also sell the iPhone 5, run separate ads.

India is the world's No. 2 cellphone market by users, but
most Indians cannot afford fancy handsets. Smartphones account
for just a tenth of total phone sales. In India, 95 percent of
cellphone users have prepaid accounts without a fixed contract.
Unlike in the United States, carriers do not subsidise handsets.

Within the smartphone segment, Apple's Indian market share
last quarter was just 5 percent, according to Canalys, meaning
its overall penetration is tiny.

Still, industry research firm IDC expects the Indian
smartphone market to grow more than five times from about 19
million units last year to 108 million in 2016, which presents a
big opportunity.

Samsung Electronics Co Ltd dominates Indian
smartphone sales with a 40 percent share, thanks to its wide
portfolio of Android devices priced as low as $110. The market
has also been flooded by cheaper Android phones from local
brands such as Micromax and Lava.

Most smartphones sold in India are much cheaper than the
iPhone, said Gartner analyst Anshul Gupta.

"Where the masses are - there, Apple still has a gap."

'I LOVE INDIA, BUT...'

Apple helped create the smartphone industry with the iPhone
in 2007. But last year Apple lost its lead globally to Samsung
whose smartphones, which run on Google Inc's free
Android software, are especially attractive in Asia.

Many in Silicon Valley and Wall Street believe the surest
way to penetrate lower-income Asian markets would be with a
cheaper iPhone, as has been widely reported but never confirmed.
The risk is that a cheap iPhone would cannibalise demand for the
premium version and eat into Apple's peerless margins.

The new monthly payment plan in India goes a long way to
expanding the potential market, said Chakrawarti.

"The Apple campaign is not meant for really the regular
top-end customer, it is meant to upgrade the 10,000-12,000
handset guy to 45,000 rupees," he said.

Apple's main focus for expansion in Asia has been Greater
China, including Taiwan and Hong Kong, where revenue grew 60
percent last quarter to $7.3 billion.

Asked last year why Apple had not been as successful in
India, Chief Executive Tim Cook said its business in India was
growing but the group remained more focused on other markets.

"I love India, but I believe that Apple has some higher
potential in the intermediate term in some other countries,"
Cook said. "The multi-layer distribution there really adds to
the cost of getting products to market," he said at the time.

Apple, which has partly addressed that by adding
distributors, did not respond to an email seeking comment.

Ingram Micro Inc, one of its new distributors, also
declined comment. Executives at Redington (India) Ltd,
the other distributor, could not immediately be reached.

BlackBerry, which has seen its global market share shrivel
to 3.4 percent from 20 percent over the past three years, is
making what is seen as a last-ditch effort to save itself with
the BB10 series.

The high-end BlackBerry Z10 was launched in India on Monday
at 43,490 rupees ($800), close to the 45,500 rupees price tag
for an iPhone 5 with 16 gigabytes of memory. Samsung's Galaxy S3
and Galaxy Note 2, Nokia's Lumia 920 and two HTC Corp
models are the main iPhone rivals.

BlackBerry will target corporate users and consumers in
India for the Z10, said Sunil Dutt, India managing director,
adding that it will tie-up with banks for instalment plans.

Until last year, BlackBerry was the No. 3 smartphone brand
in India with market share of more than 10 percent, thanks to a
push into the consumer segment with lower-priced phones. Last
quarter its share fell to about 5 percent, putting it in fifth
place, according to Canalys. Apple was sixth.